Feds use Patriot Act to target virtual currency site in money laundering case

Federal officials are charging an online virtual currency service with running a $6 billion money-laundering operation and are using the Patriot Act to freeze it out of the American financial system.

Liberty Reserve, an online money transfer system based in Costa Rica, is charged with allowing criminals to send money around the world, in what the government believes is the largest global prosecution of this type in history.

Under the service, users can anonymously convert money into virtual currency and transfer it from account to account, which officials at the Justice and the Treasury departments say allows criminals to hide the sources of their money.

ADVERTISEMENT

On Tuesday, seven of the company's founders and managers were charged by the Justice Department for their roles in the money-laundering scheme. Five of the company's leaders were arrested in Spain, Costa Rica and the United States. Two are still at large in Costa Rica.

Additionally, the Treasury Department designated the service under a section of the Patriot Act that targets money-laundering operations. The designation allows the department's Financial Crimes Enforcement Network (FinCEN) to propose prohibiting American financial institutions from interacting with Liberty Reserve.

Liberty Reserve is the first virtual currency provider to be designated under the Patriot Act provision.

The service has more than one million users, the government alleges, including more than 200,000 in the U.S.

According to the Treasury Department, the service is "widely used by criminals worldwide to store, transfer and launder the proceeds of a variety of illicit activities," including identity fraud, credit card theft and child pornography.

"The company’s very purpose was to launder its users’ criminal proceeds through the U.S. and global financial system," Mythili Raman, the acting assistant attorney general for the Justice Department's criminal division, said in a statement.

The institution's website and that of four exchangers were also seized by the Justice Department on Tuesday.

Law enforcement in 17 countries were involved in the takedown.

"The global enforcement action we announce today is an important step towards reining in the ‘Wild West’ of illicit Internet banking," U.S. Attorney Preet Bharara added. "As crime goes increasingly global, the long arm of the law has to get even longer, and in this case, it encircled the earth.”

The administration's actions come as the federal government weighs its regulatory actions over virtual currency systems.

Earlier this month, the Department of Homeland Security seized assets from the world's largest exchange of the virtual currency bitcoin for operating an unlicensed money transmitting service.